UPDATE 4-Speculation builds on a Verizon-Charter tie-up, no offer made

Jan 26 (Reuters) - Verizon Communications Inc is
interested in exploring a combination with U.S. cable company
Charter Communication Inc
as part of a long list of acquisition targets, but no proposal
has been made for a tie-up between the two companies, sources
told Reuters on Thursday.

Speculation over a combination of the companies underscores
the pressure the nation's largest wireless carrier faces to do a
deal in the wake of AT&T Inc's planned $85.4 billion
takeover of Time Warner Inc. Verizon and other carriers
also face a saturated smartphone market.

Verizon said in July that it struck a deal to buy Yahoo
Inc's core internet properties, but the deal was cast
into doubt after Yahoo disclosed data breaches last year.

"I think the market is predictably impatient and wants
Verizon to do something yesterday," said Craig Moffett, an
analyst at MoffettNathanson. "The market inevitably draws the
comparison to AT&T that, for better or worse, has made its big
strategic bet."

After rising as much as 10 percent and hitting a session
high of $341.50 on the news, Charter shares eased and
were trading up 6.5 percent at $330.59. Verizon shares
were down 1.4 percent at $49.08.

Charter and Verizon declined to comment.

A Charter acquisition would signal that Verizon has a
drastically different strategic vision than rival AT&T, which
has sought to diversify away from the wireless business through
its deal for Time Warner and earlier acquisition of satellite-TV
provider DirecTV.

Instead, a deal for Charter would indicate Verizon is
betting on infrastructure. On its earnings conference call with
investors on Tuesday, Chief Financial Officer Matt Ellis said
that 5G wireless technology was a focus for Verizon.

"The great irony could be that the cable operators are
better positioned to compete in 5G wireless than the wireless
operators themselves," Moffett said.

Speculation over a tie-up with Charter has been building
steadily since last month when Verizon Chief Executive Officer
Lowell McAdam told Wall Street analysts that such a deal would
make "industrial sense," according to a December note by BTIG
analyst Walter Piecyk.

With Charter, Verizon would gain a fiber and cable network
across 49 million homes, including markets in California, Texas,
and Florida, that the wireless carrier recently divested to
Frontier Communications Corp, JPMorgan analysts said in
a note in December.

From a traditional antitrust point of view, the combination
of a phone company and a cable company would not raise
competition issues that cannot be overcome, said George
Bittlingmayer, a professor at the University of Kansas School of
Business.

"The wildcard here is whether people's unhappiness with
their cable and mobile phone providers would translate into some
grandstanding and arm-twisting on the part of the new
administration for political benefit," he said.

Phil Cusick, an analyst at JPMorgan, said in an email on
Thursday that he expects $2 billion in annual synergies from a
Charter deal but added that the deal's math is "difficult to
make work," noting that a combined company would be heavily
leveraged.

The Wall Street Journal, which first reported a preliminary
approach between the companies, said it was unclear if Charter's
executives would be open to a transaction and that there was no
guarantee a deal would be struck.

Verizon had a market capitalization of $203 billion as of
Wednesday's close, while Charter was valued at nearly $84
billion, according to Thomson Reuters data.

(Reporting by Anjali Athavaley in New York and Liana B. Baker
in San Francisco; Editing by Jeffrey Benkoe and Alan Crosby)

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